Introduction

On Monday, Argentina’s financial authorities devalued the local currency (peso) by about 20% in anticipation of volatility in the foreign exchange market, amid unexpected results achieved by far-right politician Javier Milli in the preliminary vote in the presidential election on Sunday.

Data from Argentina’s central bank showed the peso trading at 365.50 to the dollar, up from 298.50 on Friday.

Political Impact

Millie, outside the traditional political club that has previously vowed to dollarize Argentina’s ailing economy, did better than expected in Sunday’s primary. Local media called the results a “political tsunami”.

In an electoral system unique to the region, Argentines voted for an elected candidate among 22 presidential candidates in a procedure that allows parties to choose their main candidate and at the same time allows them to test their popularity.

Milli Banile won more than 30% of the vote, while center-left coalition candidate Patricia Bollrich won about 28% of the vote and Economy Minister Sergio Massa about 26%.

President Alberto Fernandez is not running for a new term in the October election as his popularity plummets as inflation rises to 115% year-on-year, poverty rises by almost 40% and the peso depreciates.

The government, which is suffering from declining foreign exchange reserves, has imposed strict currency restrictions and raised import taxes to get more dollars.

Financial Implications

On the black market, hard currency, or what is known as the “blue dollar”, which is most accessible to residents and merchants, traded at around 680 pesos per dollar.

On Monday, the Central Bank announced a significant increase in the main interest rate on loans, from 97% to 118%, the third of its kind in 5 months.

The bank stressed that the move would absorb “exchange rate expectations and minimize the impact on prices.”

Treasury dollar bonds and Argentine stocks lost about 10% of their value on Wall Street on Monday.